Wealth is not money

Money is just a kind of wealth. It is not wealth itself. Realizing this leads to some interesting insight.

Arbitrage

If you know that a stock is definitely going to cost $50 more one month from now than it is now, you will buy tonnes of it now, sell it a month later, and make a definite profit. But remember that wealth is not money. Thus if you know that a stock and an apple cost the same right now but are definitely going to cost different in future, you can once again make a definite profit. So if the stock is going to cost double in future, you sell an apple today and buy a stock. A month from now, you sell the stock and buy two apples. You have just converted one apple to two apples in a month.

Import-export

A country’s total import is always equal to its total export. Why?

If a person decides to, he can of course keep on buying things without ever selling anything. So if a person can do this, why can’t a country?

This one is a more subtle application of the wealth is not money principle. The point is to treat money as just another kind of wealth, i.e., to realize that every trade is a barter trade. When you are buying an apple for a dollar, you are selling a dollar for an apple. So there you go, even a person cannot buy without selling.

How to grow your wealth

So since everything one can own is some form of wealth, how does one grow it? There are two ways of doing it:

  1. Own more things.
  2. Somehow make people want the things you already own.

Similarly, there are two ways of losing wealth:

  1. Give away stuff you own.
  2. Make people hate the things you own.

The second point above restricted to money is called inflation. If you own a currency that people start disliking, you have been a victim of inflation.

This also means that being wealthy is a dynamic state and not a static one. Most people’s formula for being wealthy is to own a lot of money and stash it into a bank account. While this may work to a certain degree, it does not reflect reality. Being wealthy is really about owning lots of things that other people want. This is specially difficult since what other people want is a variable that changes constantly with time. Thus to really be wealthy, you need to constantly look out for people’s changing preferences and perform strategic trades to maintain a valuable portfolio.

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